Fixed Income Investor Presentation - For the six months ended 31 March 2020 - Westpac
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Fixed Income Investor Presentation For the six months ended 31 March 2020
Disclaimer. The material contained in this presentation is intended to be general background information on Westpac Banking Corporation (“Westpac”) (ABN 33 007 457 141) and its activities. It should not be reproduced, distributed or transmitted to any person without the consent of Westpac and is not intended for distribution in any jurisdiction in which such distribution would be contrary to local law or regulation. It does not constitute a prospectus, offering memorandum or offer of securities. The information is supplied in summary form and is therefore not necessarily complete. Also, it is not intended that it be relied upon as advice to investors or potential investors, who should consider seeking independent professional advice depending upon their specific investment objectives, financial situation or particular needs. The material contained in this presentation may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. All amounts are in Australian dollars unless otherwise indicated. Financial information in this presentation may be presented on a cash earnings basis. Cash earnings is a non-GAAP measure. Refer to Westpac’s 2020 Interim Financial Results Announcement on Form 6-K for the six months ended 31 March 2020 (“Interim Financial Results Announcement”) filed with the SEC for details of the basis of preparation of cash earnings. Refer to Appendix 1 for a reconciliation of reported net profit to cash earnings. Financial data in this presentation is as at 31 March 2020 unless otherwise indicated. Comparisons of 1H20 financial results are to 2H19 unless otherwise stated Information contained in or otherwise accessible through the websites mentioned in this presentation does not form part of the presentation unless we specifically state that the information is incorporated by reference thereby forming part of the presentation. All references in this presentation to websites are inactive textual references and are for information only. This presentation is directed only at persons who (i) have professional experience in matters relating to investments; or (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc.”) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended); or (iii) are outside the United Kingdom (all such persons together being referred to as “relevant persons”). This document must not be acted on or relied on by persons who are not relevant persons. Disclosure regarding forward-looking statements This presentation contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. Forward-looking statements are statements about matters that are not historical facts. Forward-looking statements appear in a number of places in this presentation and include statements regarding our intent, belief or current expectations with respect to our business and operations, market conditions, results of operations and financial condition, including, without limitation, future loan loss provisions, financial support to certain borrowers, indicative drivers, forecasted economic indicators and performance metric outcomes. We use words such as ‘will’, ‘may’, ‘expect’, 'indicative', ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘aim’, ‘probability’, ‘risk’, ‘forecast’, ‘likely’, ‘estimate’, ‘anticipate’, ‘believe’, or other similar words to identify forward-looking statements. These forward-looking statements reflect our current views with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond our control and have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon us. There can be no assurance that future developments will be in accordance with our expectations or that the effect of future developments on us will be those anticipated. Should one or more of the risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results could differ materially from the expectations described in this presentation. Factors that may impact on the forward-looking statements made include, but are not limited to, those described in the section entitled ‘Risk factors’ in Westpac’s Interim Financial Results Announcement filed with the SEC. When relying on forward-looking statements to make decisions with respect to us, investors and others should carefully consider such factors and other uncertainties and events. We are under no obligation, and do not intend, to update any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise, after the date of this presentation. 2 Westpac Fixed Income Investor Presentation May 2020
1H20 overview.
COVID-19 • Protecting our people
• Helping customers - relief packages, continuing to lend
• Remaining open for business
Remaining strong • Strong capital, funding and liquidity
• Term Funding Facility provides additional liquidity
• Well progressed on TLAC
Earnings significantly • Result reflects environment and our own issues
lower
• $2.2bn impairment charge, $1.0bn (after tax) charge for AUSTRAC
matters
Simplifying the • Focus on Australia and New Zealand banking
business • Creating Specialist Businesses division
• Clear priorities for the long term
3 Westpac Fixed Income Investor Presentation May 2020COVID-19 Australian Government support measures.
Reserve Bank of Australia (RBA) Australian Federal Government and Australian Federal Government and RBA
supporting market liquidity State Governments providing stimulus stimulus packages ($bn)
• Cash rate cut to 25bps • JobKeeper Payment - wage subsidy of $1,500 JobKeeper
per fortnight per eligible employee for up to 6 Payment
• Open market operations – added 1-month and
months
3-month repos daily and 6-month (or longer) at
125
least weekly • Two one-off payments of $750 to persons $320bn 130 Support for
individuals and
receiving social assistance
• Government bond purchase program targeting or 16.4% households
3-year yield of ~25bps • Fortnightly payments to recipients of income of GDP Support for
support increased to $550 businesses
• Established $90bn Term Funding Facility,
allowing ADIs to borrow up to 3% of credit • Early release of superannuation (up to $20k) 39 25
outstanding for 3 years at 25bps. Allocations and reduction in superannuation drawdown Supporting the
may rise if ADIs increase lending to rates flow of credit
businesses, especially SMEs
• Cash flow assistance to SMEs and non-for-
• Exchange Settlement account balances profits (Westpac COVID-19 response
Keeping our people safe Supporting consumers
Protecting those coming into work; social distancing and There when you need us with >90% of Branches open,
enhanced cleaning ATM availability 99% in March
~22k employees working from home $39bn in mortgage balances deferred, 105k mortgage
accounts
System upgrades providing new collaboration tools 300k
hours of audio and video2 Special interest rates, TDs & Fixed rate home loans
Backing businesses Standing behind economy & communities
$8bn in loan balances deferred, 31k customers supported Government/Industry coordination on packages
~1,200 customers approved for bridging finance ahead of $1m Westpac foundation grants brought forward for small
JobKeeper payments local not-for-profits3
Lower lending rates, 200bps on overdrafts, 100bps on Maintained focus on customers and communities affected by
SME cash-based loans bushfires (~2,000 disaster packages), floods and major
storms
Merchant terminal fee relief for certain customers
1 Metrics for Australia and Australian customers. 2 In March 2020. 3 Westpac Foundation is administered by Westpac Community Limited as trustee for Westpac Community Trust (ABN 53 265 036 982). Westpac Community Trust is a Public Ancillary
Fund, endorsed by the ATO as a Deductible Gift Recipient and is not a part of Westpac Group.
5 Westpac Fixed Income Investor Presentation May 2020Customer support for mortgages1.
Repayment relief for Australian home loan customers.
Total mortgage portfolio Repayment relief provided Repayment relief criteria
1.6m accounts 105k accounts 3 months with review
Initial 3 month repayment deferral on home loan repayments with
$446bn balances $39bn balances
interest capitalising. Option to extend by a further 3 months following a
59% owner-occupier 66% owner-occupier review
73% principal & interest 79% principal & interest
41% more than 3 months ahead 24% more than 3 months ahead on
on repayments repayments
57% weighted avg dynamic LVR 65% weighted avg dynamic LVR
Australian mortgage repayment relief Australian mortgage repayment relief
approvals by dynamic LVR (%) approvals by state (%)
8 0% - 60% 8 NSW
9
14 Victoria
61% - 80%
38 39
QLD
81% - 90% 17
WA
>90% Other States and Territories
3
40
28
Chart does not add to 100 due to rounding
1 Data at 29 April 2020. For eligibility and terms and conditions, please refer to the Westpac website www.westpac.com.au
6 Westpac Fixed Income Investor Presentation May 2020Liquidity coverage ratio.
Liquidity at exceptionally high levels.
Liquidity coverage ratio (LCR)1 (%) Liquidity coverage ratio (LCR)1 ($bn and %)
30 September 2019 31 March 2020
LCR 127% LCR 154%
200.0 190.9
154 143.9
150.0 123.6
113.4
138 100.0
134 134 133
127 125 124 127
121 50.0
114
0.0
Net cash outflows Liquid assets Net cash outflows Liquid assets
Customer deposits High Quality Liquid Assets
1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18 1H19 2H19 1H20
Wholesale funding Committed Liquidity Facility
Other flows Term Funding Facility
LCR eligible liquid assets ($bn and %) Liquidity coverage ratio (LCR)1 (%)
Term Funding 13 (13)
Facility 26 1 154
$17.9bn 9
127
High Quality Liquid
27 Assets (HQLA)
$190.9bn
Committed Liquidity $121.0bn
Facility (CLF) 63
$52.0bn
Sep-19 HQLA CLF and TFF Customer Wholesale Mar-20
Deposits funding and
Chart does not add to 100 due to rounding other flows
1 LCR is calculated as the percentage ratio of stock of HQLA and CLF over the total net cash outflows in a modelled 30 day defined stressed scenario. Calculated on a spot basis. HQLA includes HQLA as defined in APS 210, RBNZ eligible liquids, less
RBA open repos funding end of day ESA balances with the RBA. Committed Liquidity Facility or CLF is made available to Australian Authorised Deposit-taking Institutions by the RBA that, subject to qualifying conditions, can be accessed to meet LCR
requirements under APS210 – Liquidity. Other flows include credit and liquidity facilities, collateral outflows and inflows from customers. In 1H20, LCR also includes Westpac’s Initial Allocation of the Term Funding Facility.
7 Westpac Fixed Income Investor Presentation May 2020Balance sheet funding.
Net stable funding ratio at 117%.
Net stable funding ratio (NSFR) ($bn) Funding composition (%) Key developments
By residual maturity • Customer deposits, 63% of total funding
627.7 5 5 5 – Strong growth in customer deposits, up $19.3bn
Wholesale 536.6 9 7 7 in 1H20, compared to loans (up $4.9bn)
funding and
other liabilities Liquids and other3 increased the Group’s deposit to loan ratio to
5 5 75.6% (2H19: 73.4%)
Corp. & Insto 4
deposits
Other loans4
11 12 12 • Term Funding Facility (TFF)
1 1 1
Retail & SME 8 8 8 – The TFF makes available at least $90bn in
deposits
Residential
aggregate to ADIs to support lending to
mortgages Australian businesses
≤35% risk
weight
– Funding is provided on a collateralised basis at
Capital
an interest rate of 25bps, fixed for the term of the
62 63 63
Available Stable Funding Required Stable Funding funding, for a maximum of 3 years
– Westpac’s Initial Allowance is $17.9bn and can
Net stable funding ratio (NSFR) (%) be drawn down until 30 September 2020
– An Additional Allowance is also available to ADIs
1.8 (0.2) 117 Mar-19 Sep-19 Mar-20 and is based on lending provided by the ADI to
0.9 1.3
112 0.9 0.8 1 both large businesses and SMEs in the 3 months
Wholesale Onshore 1yr calculation of both the NSFR and the LCR as a
Sep-19
Retail & SME
Corporate &
Mar-20
Capital
liquids & other
funding and other
Mortgages ≤35%
Institutional
Other loans,
committed liquidity facility
Deposits
Securitisation
Deposits
Risk Weight
Residential
Wholesale
Equity 2
Customer deposits
Bars may not add to 100 due to rounding
1 Includes long term wholesale funding with a residual maturity less than or equal to 1 year. 2 Equity excludes FX translation, Available-for-Sale securities and Cash Flow Hedging Reserves. 3 Other includes derivatives and other assets. 4 Other loans
includes off balance sheet exposures and residential mortgages >35% risk weight.
8 Westpac Fixed Income Investor Presentation May 2020Long term wholesale funding.
$12.9bn issued in 1H20.
Term debt issuance and maturity profile1,2,3 ($bn)
• $12.9bn new long term wholesale funding raised Covered bond Hybrid Senior/Securitisation Sub debt
• Majority of new issuance in senior unsecured 42 Issuance Maturities
bonds (44%) and covered bonds (20%) in line 37 36
with prior years. Securitisation also contributed 32 34
31
20% 28 27
22 24
• Increased Tier 2 issuance ($2.2bn in 1H20), as
the Group made progress towards APRA’s TLAC 13 13 14
requirements 8
• Higher proportion of USD term issuance in 1H20
reflects the depth of the US market and attractive
FY15
FY16
FY17
FY18
FY19
1H20
2H20
FY21
FY22
FY23
FY24
FY25
FY26
>FY26
funding levels early in 2020 calendar year
New term issuance by tenor2,4 (%) New term issuance by type (%) New term issuance by currency (%)
Charts may not add to 100 due to rounding. Charts may not add to 100 due to rounding. Charts may not add to 100 due to rounding.
5.8yrs 6.5yrs 5.2yrs WAM5
4 5 AUD
29 13 17 Subordinated debt 20
>5years 5
46 41 4 32
13 8 46
5 years 20 Hybrid USD
24
4 years 20 Securitisation 32
48
42 3 years 27 77 EUR
38 73
Covered bonds
2 years 51 21
44
21 Other
7 11 23 1 year Senior unsecured
15 4
7 5 7
FY18 FY19 1H20 FY18 FY19 1H20 FY18 FY19 1H20
1 Based on residual maturity and FX spot currency translation. Includes all debt issuance with contractual maturity greater than 13 months excluding US Commercial Paper and Yankee Certificates of Deposit. 2 Contractual maturity date for hybrids and
callable subordinated instruments is the first scheduled conversion date or call date for the purposes of this disclosure. 3 Perpetual sub-debt has been included in >FY26 maturity bucket. Maturities exclude securitisation amortisation. 4 Tenor excludes
RMBS and ABS. 5 WAM is weighted average maturity.
9 Westpac Fixed Income Investor Presentation May 2020Tier 2 capital.
Well progressed on TLAC requirements.
Westpac Tier 2 issuance and calls/maturities1,2 (notional amount, A$m)
3
Tier 2 maturities Approx. TLAC requirement based on RWAs at 31 March 2020
5,000 Issuance Maturities
4,000
3,000
2,000 4,209
2,423 2,423 2,660
1,000 2,241 2,019
1,090 1,343 1,150 1,350
600
0 0
FY19 1H20 2H20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 >FY29
Westpac Total Regulatory Capital Westpac Tier 2 capital (notional amount, %)
By format4 By currency4
CET1 Additional Tier 1 Tier 2
31
18 7
5.0% 2 USD
3.3% ($15bn) (approx. $22bn3) 8 AUD Domestic
2.1% ($9bn) AUD EMTN
Callable
SGD
Bullet
10.8% ($48bn) 18 61 JPY
NZD
82 HKD
31 March 2020 1 Jan 2024
APRA-basis APRA-basis
1 Represents AUD equivalent notional amount using spot FX translation at date of issue for issuance and spot FX translation at 31 March 2020 for maturities. 2 Securities in callable format profiled to first call date, excluding the Perpetual Floating Rate
Notes issued 30 September 1986. Securities in bullet format profiled to maturity date. 3 Estimates are based on Westpac’s RWAs as at 31 March 2020, as measured under the current capital adequacy framework. Assumes no risk-weighted asset
growth over the transition period and no management buffer. 4 Represents AUD equivalent notional amount using spot FX translation as at 31 March 2020.
10 Westpac Fixed Income Investor Presentation May 20201H20 key metrics.
Disappointing earnings, strong balance sheet.
Change
1H20 – Impairment charges and stressed exposures2 (bps)
Financial metrics 1H20 2H19 2H19 80 500
Impairment charge to average loans annualised (lhs)
Stressed exposures to TCE (rhs) 62bps 400
Reported net profit $1,190m $3,611m (67%) 60
Cash earnings1 $993m $3,553m (72%) 300
40
Reported net interest margin 2.21% 2.15% 6bps 200
Reported expense to income 20
58.3% 47.0% Large 100
ratio
132bps
Reported return on equity 3.5% 11.2% Large 0 0
2008 2010 2012 2014 1H16 1H17 1H18 1H19 1H20
Reported results ($bn) Loans and deposits ($bn)
3,611 (66) Total loans Aust. Housing Customer deposits
(1,166)
715 720
544
(1,777) 525
Up 1%
588 1,190
449 446 Up 4%
Net operating Operating Down 1%
2H19 Impairment Tax and NCI 1H20
income before expenses charges
operating
expenses and
impairment charges 2H19 1H20 2H19 1H20
1. Refer Appendix 1 for reconciliation of reported net profit to cash earnings. 2 1H19 reflects the adoption of AASB 9 from 1 October 2019. 2008 and 2009 are pro forma including St.George for the entire period with First Half 2009 Profit Announcement
providing details of pro forma adjustments.
11 Westpac Fixed Income Investor Presentation May 2020COVID-19 provision reflects 3 key drivers.
Change in economic forecasts and scenario weights $1,135m Sector overlays $446m
Changed economic forecasts Changed scenario weights (%) High risk as % of total TCE
Forecast base case
Q3 2020
(peak) 2020 2021 Cultural & recreational services
10.0 5.0 0.1
GDP (yr end) (8.2%) (5.0%) 4.0% 0.5 Health & community services
0.5
Upside
Unemployment 8.8% 6.8% 6.0% 0.5
scenario Manufacturing
0.8
Residential 55.0 0.9
(2%) (15%) (5%) Base case Transport & storage
property prices
62.5
1.1
Expected credit loss scenarios Balance sheet Construction
Downside
($m) provision scenario
Accommodation, cafes &
4.4 restaurants
Sep-19 Mar-20
40.0 Retail & wholesale trade
7,902 27.5
7,065 Property & property services
Sep-19 Mar-20
5,766
• Westpac uses 3 economic scenarios for impairment • Overlay reflects assessment of industries currently
4,476 provision estimates under greater risk of downgrade, and expectation
3,913 consumer portfolios may also deteriorate
• Downside case reflects longer duration economic
2,748 cycle • Assume a significant increase in credit risk has
occurred and hence provisions move from 12
month expected loss to lifetime expected loss
100% base case 100% downside ECL Provisions
ECL ECL
12 Westpac Fixed Income Investor Presentation May 2020Key capital ratios.
Capital buffers provide ability to support economy during stress.
% Mar-19 Sep-19 Mar-20 10.8% CET1 capital ratio at 31 March 2020
0.3% Buffer
CET1 capital ratio 10.6 10.7 10.8
10.5% unquestionably 2.5%
2.8% Buffer $12.0bn
strong benchmark Unquestionably
Strong expectation
Additional Tier 1 capital 2.2 2.2 2.1 8.0% requirement2
3.5% 3.5%
Capital Capital
Tier 1 capital ratio 12.8 12.8 12.9 Conservation Conservation
Buffer Buffer
Tier 2 capital 1.8 2.8 3.4 4.5% 4.5%
CET1 CET1
Minimum Minimum
Total regulatory capital ratio 14.6 15.6 16.3
Unquestionably strong benchmark Regulatory capital requirement
Risk weighted assets
420 429 444
(RWA) ($bn)
The impact of higher impairment provisions on capital (Level 2), $bn
Leverage ratio 5.7 5.7 5.7 30 September 2019 31 March 2020
5.7
5.5 Regulatory
5.0 $1.1bn expected
Level 1 CET1 ratio 10.7 11.0 11.1 capital loss
3.9 deduction deduction
Internationally for excess reduced to
over nil
comparable ratios1
provisions
Leverage ratio
6.4 6.4 6.3
(internationally comparable)
CET1 capital ratio
16.2 15.9 15.8 AASB 9 Regulatory AASB 9 Regulatory
(internationally comparable)
Provisions Expected Loss Provisions Expected Loss
1 Internationally comparable methodology aligns with the APRA study titled ‘International Capital Comparison Study’ dated 13 July 2015. 2 The regulatory requirement of 4.5% and 3.5% Capital Conservation Buffer for D-SIBs. It may be higher for
individual banks.
13 Westpac Fixed Income Investor Presentation May 2020Australian economic snapshot.
Government well positioned to provide support.
Key Statistics GDP Federal Budget
% ann % ann % of Underlying cash balance $bn
10 10 GDP
2.2% GDP as at 2019 Q4 8 Westpac fc/s 8 4 40
to end 2023
6 6 0 0
-9.3% Forecast Australian GDP Q3 2020 4 4
-4 -40
2 2
0 0 -8 -80
5.2% Unemployment rate as at Mar 2020 -2 -2 -12 -120
$bn (rhs)
-4 -4 -16 -160
Forecast peak unemployment rate -6 -6 % of GDP (lhs) Westpac fc/s
9.1% Q3 2020 -20 to 2020/21 -200
-8 -8
Total Australian Federal Government -10 -10 -24 -240
stimulus and measures to support Dec-80 Dec-88 Dec-96 Dec-04 Dec-12 Dec-20 1987/88 1995/96 2003/04 2011/12 2019/20
$320bn credit in response to COVID-19 crisis Sources: ABS, Westpac Economics Sources: Budget papers, ABS, Westpac Economics
(16.4% of GDP)
Unemployment RBA cash rate and 3 year bonds
$90bn RBA Term Funding Facility
monthly
% % 8% % 8
Australian Government 12 12 RBA cash rate
$130bn Westpac fc/s 7 7
Job Keeper Payment 3 year bonds
to end 2021
10 10 6 6
0.25% RBA cash rate as at 1 May 2020 5 5
8 8
4 4
RBA target level for the
0.25% 3yr Australian Government bond rate 6 6 3 3
Forecasts factor in 2 2
65c AUD/USD as at 29 Apr 4 expected impact of 4
1 1
JobKeeper Payment
2 2 0 0
66c Forecast AUD/USD Dec 2020
Dec-80 Dec-90 Dec-00 Dec-10 Dec-20 Mar-06 Mar-09 Mar-12 Mar-15 Mar-18
Sources: ABS, Westpac Economics Sources: RBA, Bloomberg, Westpac Economics
1 Average RBA core CPI is average of seasonally adjusted trimmed mean & weighted median CPI. 2 The NAIRU – or non-accelerating inflation rate of unemployment – is a benchmark for assessing the degree of spare capacity and inflationary
pressures in the labour market. When the observed unemployment rate is below the NAIRU, conditions in the labour market are tight and there will be upward pressure on wage growth and inflation.
Source: RBA.
14 Westpac Fixed Income Investor Presentation May 2020Additional information
1H20 impairment charges.
Higher collectively assessed provisions the main driver of increase.
Impairment charges ($m) Impairment
1H19 ($m) 1H20 ($m) Drivers of 1H20 charge
charge ($m)
Individually assessed Collectively assessed Total
New Write-backs & Write-offs Other mvmts Individually assessed
IAPs recoveries direct in CAP 1 2,238
Institutional – driven by small
1,619 number of large corporate exposures
New individually Business division – exposures
173 351
assessed across several sectors
351 418 535 438 333 461 New Zealand – driven by one large
173 170
corporate exposure
(108)(74) Mainly write-backs in Business
(150)(170) (170) Write-backs and
(150) (170) division and recoveries in Consumer
recoveries
1H19
2H19
1H20
1H19
2H19
1H20
1H19
2H19
1H20
1H19
2H19
1H20
1H19
2H19
1H20
division
Total individually
23 181
assessed
Impairment charges and stressed exposures1,2 (bps) Collectively assessed
80 500 Mainly Australian unsecured
Impairment charge to average loans annualised (lhs) Write-offs 418 438
portfolios
Stressed exposures to TCE (rhs) 62bps 400 COVID-19 impact – update of
60
economic forecasts and changes to
scenario weights ($1,135m)
300 Other movements in
(108) 1,619
CAP
40 COVID-19 impact - Increased
overlay provisions ($446m)
200
Other changes in CAPs ($38m)
20 Total collectively
100 310 2,057
assessed
132bps
0 0 Total impairment
333 2,238
charge
2008 2010 2012 2014 1H16 1H17 1H18 1H19 1H20
1 1H19 reflects the adoption of AASB 9 from 1 October 2018. 2 2008 and 2009 are pro forma including St.George for the entire period with First Half 2009 Profit Announcement providing details of pro forma
adjustments.
16 Westpac Fixed Income Investor Presentation May 2020Increase in provisions.
Responding to the impact of COVID-19 and the deteriorating economic outlook.
Provisions for impairments Total impairment provisions ($m)
Mar-19 Sept-19 Mar-20 Overlay 1
Loan provisions to gross loans (bps) 56 54 80 Stage 1 CAP
Impaired asset provisions to impaired assets (%) 46 45 50
Stage 2 CAP
Collectively assessed provisions to credit RWA (bps) 98 95 140 5,788
Stage 3 CAP
795
Collectively assessed provisions to credit RWA (bps) Collectively assessed provisions (Pre 2019)
140 Individually assessed provisions (Stage 3)
117 121
108 1,019
3,995 3,922
3,602 229 171
3,481
3,332
389 3,119 766 818
389 3,053
Westpac Peer 1 Peer 2 Peer 3 388
323 301
31 Mar 2020 31 Mar 2020 31 Dec 2019 31 Mar 2020 2,317
1642 1,578
Expected Credit Loss (ECL) ($m) 2,225 2,344
2,275
Currently holding ~$1.3bn in impairment provisions 2,316 2,330
above the base case economic scenario 7,902
5,766 1,051
4,476 925 943
867 669 869
480 422 433 412 606
Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Mar-19 Sep-19 Mar-20
Reported probability- 100% base case ECL 100% downside ECL
weighted ECL AASB 139 AASB 9
1 Overlay for Mar-20 includes New Zealand overlay.
17 Westpac Fixed Income Investor Presentation May 2020Provision cover by portfolio category.
Coverage increasing across the portfolio.
Exposures as a % of TCE Provisioning to TCE (%)
Sep-181 Mar-19 Sep-19 Mar-20
Fully performing portfolio
Stage 1
provisions
95.77 95.72 Small cover as low probability of default (PD) 0.18 0.09 0.09 0.12
95.66
Fully
performing Non-stressed but significant increase in credit risk
portfolio 98.92
Lifetime expected loss based on future economic conditions 4.18 4.32 6.78
Stage 2
provisions
Watchlist & substandard
Non-stressed
but significant 2.96
increase in 3.03 Still performing but higher cover reflects deterioration 5.27 5.59 5.27 10.67
credit risk 3.24
90+ day past due and not impaired
0.62
Watchlist & 0.55
0.55 0.50
substandard In default but strong security 5.11 12.34 11.07 11.61
Stage 3
provisions
90+ day past 0.48 0.50 Impaired assets
0.39 0.43
due and not
impaired
In default. High provision cover reflects expected recovery 46.12 45.74 44.92 50.09
Impaired 0.14 0.17 0.17 0.20
Sep-18 Mar-19 Sep-19 Mar-20
1 Sep-18 provision cover calculated under AASB 139. Mar-19, Sep-19 and Mar-20 calculated under AASB 9.
18 Westpac Fixed Income Investor Presentation May 2020Portfolio composition.
Weighted towards prime residential mortgage lending.
Asset composition (%) Lending composition at 31 March 2020 (% of total)
Total assets ($968bn) Mar-19 Sep-19 Mar-20 Total loans $720bn
Loans 80 79 74
Available-for-sale securities and investment securities 8 8 9 Housing
Trading securities and financial assets at fair value 17
3 4 3 Business
through income statement
Derivative financial instruments 3 3 6 69 Institutional
Cash and balances with central banks 2 2 5 11
Other consumer
Collateral paid and other financial assets 1 1 1
3
Intangible assets 1 1 1
Life insurance assets and other assets 2 2 1
Exposure by risk grade at 31 March 2020 ($m)
Standard and Poor’s Risk Grade1 Australia NZ / Pacific Americas Asia Europe Group % of Total
AAA to AA- 142,880 7,836 8,181 1,145 917 160,959 15%
A+ to A- 38,149 5,538 3,980 5,443 3,257 56,367 5%
BBB+ to BBB- 59,837 13,009 1,806 8,859 2,303 85,814 8%
BB+ to BB 68,653 13,111 338 1,959 561 84,622 8%
BB- to B+ 60,353 11,114 15 126 32 71,640 7%Loan portfolio composition.
Composition remains consistent half on half.
Exposures at default1 by sector ($bn) Top 10 exposures to corporations and NBFIs6 (% of TCE)
2
Finance & insurance The single largest
corporation/NBFI
3 exposure represents
Government admin. & defence 0.3% of TCE
Reflects increased
Property holdings of 1.3 1.3
Government bonds 1.1 1.2 1.2
1.1 1.0 1.1 1.0 1.0
and other HQLA 1.0
Wholesale & retail trade
Manufacturing
Property services & business
services
Sep-10Sep-11Sep-12Sep-13 Sep-14Sep-15Sep-16Sep-17Sep-18 Sep-19 Mar-20
4
Services
Top 10 exposures to corporations & NBFIs
Agriculture, forestry & fishing
at 31 March 2020 ($m)
Transport & storage A+
BBB+ Reflects clearing house
Utilities
S&P rating or equivalent
BB+ membership
5
BBB+
Construction Mar-19
BBB
Accommodation, cafes Sep-19 A-
& restaurants
Mar-20 A+
Mining A
BBB+
Other
A
0 20 40 60 80 100 120 140 0 600 1,200 1,800 2,400 3,000
1 Exposures at default is an estimate of the committed exposure expected to be drawn by a customer at the time of default. Excludes consumer lending. 2 Finance and insurance includes banks, non-banks, insurance companies and other firms
providing services to the finance and insurance sectors. 3 Property includes both residential and non-residential property investors and developers, and excludes real estate agents. 4 Services includes education, health & community services, cultural &
recreational services and personal & other services. 5 Construction includes building and non-building construction, and industries serving the construction sector. 6 NBFI is non-bank financial institutions.
20 Westpac Fixed Income Investor Presentation May 2020Customer support for small business1.
Helping small businesses with their cash flow needs.
Approvals Repayment relief approvals by state (%)
31k repayment relief packages approved for small business customers NSW & ACT
10
Provides up to 6 months repayment deferral with interest capitalising
10 28
Equates to relief on repayments for $8bn of lending balances VIC & TAS
1,200 customers approved for unsecured lending for JobKeeper payment
QLD
100k merchant accounts - facility fees refunded
$70m saved in interest costs through reduced lending rates on facilities 25 WA
>$1bn in cash flow relief provided to business customers 28
SA & NT
Business TCE by industry (%) Repayment relief approvals by industry (%)
Property and property services
3 1 4 1 Property and property services
5 Retail and wholesale trade 4
4 20 23 Retail and wholesale trade
Agriculture 8
Agriculture
8 Finance & professional services
Finance & professional services
Other services 7
Other services
Construction
10 13 Construction
Manufacturing 12
11 Manufacturing
Accommodation & Hospitality
Accommodation & Hospitality
Transport & Storage 4
11 11 Transport & Storage
Healthcare 13
12 14 Healthcare
Education
Education
1 Data as at 29 April 2020. Business customers includes SMEStressed exposures up 12bps.
Driven by an increase in Watchlist and Impaired exposures.
Stressed exposures as a % of TCE Movement in stress categories (bps)
6 132
3.20 3 2 1
7 120
3.09 5 (2)
Watchlist & substandard 110 0
1
90+ day past due (dpd) and not impaired
2.48 Impaired
2.17 Mainly due to an increased
Mar-19
Mar-20
Substandard
Substandard
90+ dpd not
90+ dpd not
Sep-19
Watchlist
Impaired
Watchlist
Impaired
impaired 1
1
2.07
impaired
number of customer
downgrades in the
2.23 transaction managed
portfolio and a rise in
1.45 mortgage delinquencies
1.60
1.24
1.24
1.32 New and increased gross impaired assets ($m)
1.20 1.20
1.10
0.85 1.05 1.09 1.08
0.99 1,194
0.62 1,078
0.46 0.71 0.55 997 958
0.65 0.65
0.41 897
0.35 0.56 0.57 0.55
0.29 0.54
708
0.31 609 607 633 589
0.50 477 519 550
0.26 0.33 0.33 0.48 440 471 450
0.67 0.62 0.58 0.25 0.34 0.37 0.39
0.57
0.44
0.27 0.20 0.22
0.15 0.15 0.14 0.17 0.17 0.20
Mar-18
Mar-19
Mar-20
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
2H12
1H13
2H13
1H14
2H14
1H15
2H15
1H16
2H16
1H17
2H17
1H18
2H18
1H19
2H19
1H20
1 Facilities 90 days or more past due date not impaired. These facilities, while in default, are not treated as impaired.
22 Westpac Fixed Income Investor Presentation May 2020Corporate and business stressed exposures.
By industry.
Corporate and business stressed exposures by industry ($bn)
2.0
Mar-19 Sep-19 Mar-20
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Services1
Agriculture, forestry &
Manufacturing
Mining
Transport & storage
Wholesale &
Property
Finance & insurance
Accommodation, cafes
Utilities
business services
Construction
retail trade
Property &
& restaurants
fishing
Agriculture, Property & Accomm.,
Wholesale & Transport & Finance &
Sector forestry & Property Manufacturing Services business Construction cafes & Mining Utilities
retail trade storage Insurance
fishing services restaurants
Stress to
5.6% 6.9% 1.8% 2.6% 3.2% 3.2% 2.6% 4.0% 4.6% 0.1% 1.3% 0.2%
TCE (%)
1 Services includes education, health & community services, cultural & recreational services and personal & other services.
23 Westpac Fixed Income Investor Presentation May 2020Sectors in focus.
Commercial property.
Commercial property
Commercial property exposures % of TCE and % in stress
Mar-19 Sep-19 Mar-20
Total committed exposures (TCE) $66.9bn $66.9bn $67.6bn 10 Commercial property as % of TCE (lhs) 20
Commercial property % in stress (rhs)
Lending $52.3bn $51.7bn $52.7bn 8
15
Commercial property as a % of Group TCE 6.39 6.37 6.25 6
10
4
Median risk grade (S&P equivalent) BB+ BB+ BB+
5
2
% of portfolio graded as stressed1,2 1.51 1.61 1.84
0 0
% of portfolio in impaired2 0.22 0.15 0.11
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Commercial property portfolio composition (TCE) (%)
Region (%) Borrower type (%) Sector (%)
NSW & ACT Investors &
12 Developers $10m
QLD
41 Residential
43 24
45 9 SA & NT
Investors >$10m
WA 37 Retail
7
3 NZ & Pacific Diversified Property
4 Industrial
11 8 Groups and Property 24
Institutional Trusts >$10m
(diversified)
1 Includes impaired exposures. 2 Percentage of commercial property portfolio TCE.
24 Westpac Fixed Income Investor Presentation May 2020Sectors in focus.
Retail trade.
Retail trade
Retail trade exposure by sub-sector (TCE) ($bn)
Mar-19 Sep-19 Mar-20
Mar-19 Sep-19 Mar-20
Total committed exposures (TCE) $16.0bn $16.0bn $15.5bn
7.0 7.0
Lending $11.5bn $11.6bn $11.1bn 6.4
5.0 4.8 4.6 4.7
Retail trade as a % of Group TCE 1.53 1.52 1.43 4.2 3.8
BB BB BB
Median risk grade
equivalent equivalent equivalent
% of portfolio graded as stressed1,2 5.43 6.05 6.70
Personal and household Motor vehicle retailing and Food retailing
% of portfolio in impaired2 1.24 1.30 1.44 good retailing services
% of Retail trade portfolio graded as stressed (%) Retail trade by internal risk grade category (TCE) ($bn)
Rising stress reflects challenging economic Investment
conditions, in particular the impact of lower new
car sales on motor vehicle retailing 7.0 7.0 Sub-investment
6.70 Stressed
6.05 4.8 4.6
5.43 4.2 3.8
4.67 4.84
3.02
2.51
Sep-19 Mar-20 Sep-19 Mar-20 Sep-19 Mar-20
Personal and household Motor vehicle retailing Food retailing
Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20
good retailing and services
1 Includes impaired exposures. 2 Percentage of retail trade portfolio TCE.
25 Westpac Fixed Income Investor Presentation May 2020Sectors in focus.
Australian Agriculture, Forestry and Fishing.
Australian Agriculture, Forestry and Fishing
Australian Agriculture portfolio composition (TCE) (%)
Mar-19 Sep-19 Mar-20
Grain
Total committed exposure (TCE) $10.9bn $11.2bn $11.8bn
3 22 Beef & Sheep
4
Lending $8.6bn $9.1bn $9.4bn 5 Horticulture
31
Dairy
5
% Australian Agriculture of Group TCE 1.04 1.07 1.09 Services to Agriculture
6 Cotton
Median risk grade (S&P equivalent) BB BB BB Fishing & Aquaculture
7
Viticulture
% of portfolio graded as stressed1,2 4.65 4.29 5.09
10 Forestry & Logging
25 Poultry
% of portfolio in impaired2 0.35 0.28 0.38
Other
Areas of rainfall deficiencies last 3years3 Australian Agriculture portfolio by State (TCE) (%)
6
NSW/ACT
11 26
QLD
VIC/TAS
14
WA
SA/NT
21
Institutional
22
1 Includes impaired exposures. 2 Percentage of portfolio TCE. 3 Source: Commonwealth of Australia 2020, Australian Bureau of Meteorology Issued 03/04/2020.
26 Westpac Fixed Income Investor Presentation May 2020Sectors in focus.
Accommodation, cafes and restaurants and Construction.
Accommodation, cafes and restaurants
Portfolio security composition (TCE) (%) Portfolio by sub-sector (TCE) (%)
Sep-19 Mar-20
Total committed exposures 6 Accommodation
$9.6bn $9.7bn 4
(TCE) Fully Secured
Lending $8.6bn $8.7bn 28 24 37 Pubs, Taverns
and Bars
Partially Secured
Accommodation as a % of
0.92 0.90
Group TCE Cafes and
% of portfolio graded as 68 Restaurants
4.3 4.6 Unsecured
stressed1,2
33 Clubs (Hospitality)
% of portfolio in impaired2 0.3 0.4
Construction
Portfolio security composition (TCE) (%) Portfolio by sub-sector (TCE) (%)
Sep-19 Mar-20 Building Construction
Total committed exposures Non-Building
$11.6bn $11.7bn 19
(TCE) Fully Secured 24 Construction
26
Site Preparation
Lending $8.5bn $8.5bn
Services
Partially Secured
Construction as a % of Group Building Structure
1.11 1.08 Services
TCE 19
62 7 13
Installation Trade
% of portfolio graded as Unsecured
3.8 4.0 Services
stressed1,2
15 9 Building Completion
6 Services
% of portfolio in impaired2 0.8 0.9
Other Construction
1 Includes impaired exposures. 2 Percentage of portfolio TCE.
Services
27 Westpac Fixed Income Investor Presentation May 2020Sectors in focus.
Manufacturing and Mining.
Manufacturing
Portfolio by region (TCE) (%) Portfolio by sub-sector (TCE) (%)
Sep-19 Mar-20 Food, Beverage and
Tobacco
Machinery and Equipment
Total committed exposures 21 4
$30.6bn $30.0bn 17 18 Asia
(TCE) 24 Metal Product
Australia 23 Non-Metallic Mineral
Lending $18.2bn $19.0bn Product
13 Wood and Paper Product
Manufacturing as a % of Europe
2.99 2.77 Petroleum, Coal, Chemical
Group TCE
New Zealand 5 and Associated Product
8 23 Printing, Publishing and
% of portfolio graded as 5 Recorded Media
1.92 2.58 44 North America
stressed1,2 Textile, Clothing, Footwear
13 and Leather
Other
% of portfolio in impaired2 0.18 0.59
Mining (inc. oil and gas)
Portfolio by sub-sector (TCE) (%)
Mar-19 Sep-19 Mar-20
Total committed exposure (TCE) $9.8bn $10.5bn $10.3bn 5
7
Oil and gas
Lending $5.2bn $5.5bn $5.8bn
32 Other metal ore
13
Mining as a % of Group TCE 0.94 1.00 0.95 Mining services
Iron ore
Median risk grade (S&P equivalent) BBB- BBB BBB
Coal
15
% of portfolio graded as stressed1,2 0.81 0.99 1.25 Other
% of portfolio in impaired2 0.16 0.16 0.16 28
1 Includes impaired exposures. 2 Percentage of portfolio TCE.
28 Westpac Fixed Income Investor Presentation May 2020Sectors in focus.
Services and Transport & Storage.
Services1
Portfolio security composition (TCE) (%) Portfolio by sub-sector (TCE) (%)
Sep-19 Mar-20
Total committed exposures Education
$22.4bn $23.2bn
(TCE) 20 17
28
Lending $15.3n $15.8bn Fully Secured Health & Community
Services
Services as a % of Group 49
2.13 2.14 Partially Secured
TCE 20 Cultural &
Recreational Services
% of portfolio graded as Unsecured
3.7 3.2 43
stressed2,3 23
Personal & Other
% of portfolio in impaired3 0.3 0.3 Services
Transport & Storage
Portfolio security composition (TCE) (%) Portfolio by sub-sector (TCE) (%)
Sep-19 Mar-20
Road Freight Transport
Total committed exposures 7 11 Road Passenger
$17.8bn $19.1bn
(TCE) 24 10 Transport
5 Rail Transport
Lending $11.2bn $13.0bn Fully Secured 8 Water Transport
Partially Secured 1
Transport as a % of Group 55 Air and Space
1.70 1.76 Transport
TCE Unsecured
16 Services to Transport
21
% of portfolio graded as 42 Other Transport
2.5 2.6
stressed2,3
Storage
% of portfolio in impaired3 0.4 0.4
1 Services includes education, health & community services, cultural & recreational services and personal & other services. 2 Includes impaired exposures. 3 Percentage of portfolio TCE
29 Westpac Fixed Income Investor Presentation May 2020Australian consumer unsecured lending.
3% of Group loans.
Australian consumer unsecured lending portfolio1 90+ day delinquencies (%)
Mar-19 Sep-19 Mar-20 3.00
Lending $20.7bn $19.5bn $18.4bn 1.97%
2.00
30+ day delinquencies (%) 4.08 3.68 4.22 Consumer unsecured 90+ day delinquencies
1.00 up 20bps mostly due to portfolio contraction
combined with the impact of COVID-19
90+ day delinquencies (%) 1.87 1.77 1.97
0.00
Mar-18 Sep-18 Mar-19 Sep-19 Mar-20
Australian unsecured portfolio ($bn)1 Unsecured portfolio ($bn)
Unsecured performing loans balance ($bn lhs)
Mar-19 Sep-19 Mar-20
25 Unsecured 90+ day delinquencies balance ($bn rhs) 3
20.7
19.5
18.4
20
2
15
9.2 8.7 8.3
7.1 6.7 6.3 10
1
4.4 4.1 3.8
5
0 0
Jan-19
Jan-20
Mar-18
May-18
Jul-18
Mar-19
May-19
Jul-19
Mar-20
Sep-18
Sep-19
Nov-18
Nov-19
Credit cards Personal loans Auto loans Total consumer
(consumer) unsecured
1 Does not include Margin Lending.
30 Westpac Fixed Income Investor Presentation May 2020New Zealand stressed exposures.
Business stressed exposures as a % of New Zealand business TCE
Watchlist & substandard 90+ day past due and not impaired Impaired
Property
7 14
4
5 Manufacturing
5.5
4.9 15 Agriculture,
4.4
forestry & fishing
3.3 3.4 3.3 Wholesale trade
3.1 2.9
3.2
5.0
2.3 2.4 4.0 Construction
0.2 3.0 2.9 2.5
55
1.5 0.1 0.2 Other
0.9 0.8 0.5 0.0 0.1 0.0 0.1
0.3 0.3 0.1 0.1 0.3
Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Mar-20
Agribusiness portfolio Milk price & Fonterra dividend2 (NZ$) Dairy portfolio summary
Kg Ms • Overall portfolio health remains sound.
Mar-19 Sep-19 Mar-20
$10 Westpac Dairy stressed assets largely flat. Focus
Dividend Milk price Economics
$9 forecast
remains on supporting existing dairy
TCE (NZ$bn) 9.4 9.5 9.6
$8 customers with proven long-term viability
0.10 0.10
$7 0.40 0.00 0.10
Agriculture as a % of
• Fonterra has forecast a price range for the
$6
8.2 8.1 7.6 2019/20 season of $7.00-$7.60/kg milk
total TCE $5
$4 solids
% of portfolio graded 6.69 6.35 7.00 6.30
$3 6.12
as ‘stressed’1
10.0 10.0 9.8 • Increased environmental regulation, rising
$2
costs and reduced global purchasing power
$1
% of portfolio in $0
due to the COVID-19 pandemic will pose
0.40 0.32 0.48
impaired 2016/17 2017/18 2018/19 2019/20 2020/21 ongoing challenges
1 Includes impaired exposures. 2 Source: Fonterra.
31 Westpac Fixed Income Investor Presentation May 2020New Zealand consumer portfolio.
Introduction of new hardship treatment impacting delinquencies.
Mortgage 90+ day delinquencies1 (%) Unsecured consumer 90+ day delinquencies1 (%)
1.0 2.0
Introduction of changes to Introduction of changes to
the reporting of hardship the reporting of hardship 1.59
1.5
0.5 1.0
0.27
0.5
0.0
0.0
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mortgage portfolio LVR2 (%) of portfolio Mortgage loss rates each half (%)
0.25
93% of mortgage portfolio less than 80% LVR
0.20
47%
0.15
0.10
23% 23%
0.05
0.01
5% 0.00
2%
1H12
2H12
1H13
2H13
1H14
2H14
1H15
2H15
1H16
2H16
1H17
2H17
1H18
2H18
1H19
2H19
1H20
0Australian mortgage portfolio performance.
Delinquencies rising from early impact of COVID-19 disruption.
Australian mortgage portfolio Major banks’ total residential mortgage impaired and past due loans ≥ 90days
($bn and %)2
Mar-19 Sep-19 Mar-20 0.91
6 0.87 1.00
0.79 Impaired assets (lhs)
5 0.72 0.80
30+ day delinquencies (bps) 159 161 188
4 Past due loans ≥90 days (lhs)
0.60
90+ day delinquencies (bps)
82 88 94 3
(inc. impaired mortgages)
0.40
2 Total as a % residential mortgage
Consumer exposures (rhs)
482 558 468 0.20
properties in possession 1
Mortgage loss rate 0 0.00
2 3 3
annualised (bps)1 Peer 1 Peer 2 Peer 3 Westpac
Australian mortgage delinquencies and loss rates (%) Australian mortgage 90+ day delinquencies by State (%)
90+ day past due total 30+ day past due total Loss rates 3.0 NSW/ACT VIC/TAS QLD
3.0 WA SA/NT ALL
2.0
2.0
1.0
1.0
0.0 0.0
Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20
1 Mortgage loss rate is for the 6 months ending. 2 Source: Pillar 3 Reports, based on APRA Residential Mortgage classification. Exposure is on and off balance sheet exposure at default. Data as at 31 March 2020 for Westpac, Peer 1 and Peer 3. Data
as at 31 December 2019 for Peer 2.Australian mortgage portfolio composition.
Shift towards owner occupied, principal & interest lending continues.
Mar-19 Sep-19 Mar-20 1H20
Australian mortgage portfolio
balance balance balance Flow1 Australian mortgage portfolio by State (%)
5
Total portfolio ($bn) 447.2 449.2 445.7 30.4 Australian banking system
Westpac Group portfolio
Owner occupied (%) 57.3 58.3 59.4 70.3 41 41
38 1H20 Westpac Group drawdowns
Investment property loans (%) 39.1 38.5 37.6 29.4 32
29
27
Portfolio loan/line of credit (%) 3.6 3.2 2.9 0.2
16 16 14
11
Variable rate / Fixed rate (%) 76 / 24 75 / 25 77 / 23 80 / 20 9 7 7
5 6
Interest only (%) 30.6 26.9 23.4 16.4
NSW & ACT VIC & TAS QLD WA SA & NT
Proprietary channel (%) 56.3 55.7 55.5 52.7
First home buyer (%) 8.0 8.4 8.8 12.2 Switching from I/O to P&I6 ($bn)
Reached end of I/O period Customer initiated
Mortgage insured (%) 15.9 15.6 16.1 12.5
1H20
Mar-19 Sep-19 Mar-20
Flow1 7.0
12.2 8.1 7.5 5.2
Average loan size2 ($’000) 275 277 276 393 8.8
Customers ahead on repayments 5.0
69 70 70 10.0
including offset account balances3 (%)
10.7
Actual mortgage losses net of insurance4 8.3 9.0
6.5 7.5
51 57 67 5.1
($m, for the 6 months ending)
Actual mortgage loss rate annualised
2 3 3 1H17 2H17 1H18 2H18 1H19 2H19 1H20
(bps, for the 6 months ending)
1 Flow is new mortgages settled in the 6 months ended 31 March 2020 and includes RAMS. 2 Includes amortisation. Calculated at account level, where split loans represent more than one account. 3 Loans ahead on payments exclude equity/line of
credit products as there are no scheduled principal payments. 4 Mortgage insurance claims 1H20 $5m (2H19 $5m; 1H19 $7m). 5 Source Comparator Oct-Dec 2019. 6 1 I/O is interest only mortgage lending. P&I is principal and interest mortgage
lending.
34 Westpac Fixed Income Investor Presentation May 2020Australian mortgage portfolio.
Majority of borrowers have built significant equity.
Australian housing loan-to-value ratios (LVRs) (%) Australian housing loan-to-value ratios (LVRs) (%)
100 % of total portfolio
1H20 drawdowns LVR at origination
90
Portfolio LVR at origination 41 % of total portfolio where dynamic LVR >90%
80
Portfolio dynamic LVR 1 % of total portfolio where dynamic LVR >100%
70
60 27
51 49
50
43
40
16
30
21
17 17 9
20 15 14 16 13 11 7
10 8 7
10
2 2.4 1.1 1.2
0 2 1 N/A 0.9 0.3 0.4 0.2 1.0 0.5 0.3 0.2
0
0Australian mortgage portfolio underwriting.
Policy on a tightening bias.
Australian mortgage portfolio by
Current credit policy year of origination (% of total book)
Calendar year
• Borrower’s income verified via payslips or tax returns with other supporting documentation
such as PAYG income statements and salary credits to accounts where required (minimum 69% of the portfolio originated after
Income
standards for acceptable documents apply) major tightening of lending standards
• Discount of 20% applies to less certain income sources i.e. rental income/bonuses
• Bespoke application scorecards segmented by new and existing customers
Credit Score & 15
• Credit and score override rates tracked and capped 15
Credit Bureau
• Credit bureau checks required
13
• Expenses are assessed as the higher of a borrower’s HEM comparable expenses or HEM1,
plus any expenses that are not comparable to HEM (e.g. private school fees, life insurance)
Expenses • HEM is adjusted by income bands, post settlement postcode location, marital status and 12
dependants
• 17 expense categories used, aligned with Melbourne Institute guidelines and LIXI standards 10
• For serviceability assessment, interest rate applied to all mortgage debt is the greater of:
– Actual interest rate plus buffer of 2.50%; and
– Minimum assessment rate of 5.35%
• For IO Loans, serviceability is assessed on a P&I basis over the residual term 7
Serviceability • All existing customer commitments are verified
assessment • Review Westpac Group accounts and Comprehensive Credit Reporting (CCR) to identify
customer commitments 5
• Limits apply to Debt-to-Income lending from 6x; above 7x referred for manual credit
assessment 4
3 3
• Credit card repayments assessed at 3.8% of limit 3 3
2
Genuine savings 2 2
• Minimum 5% proof of genuine savings for higher LVR loans (typically LVR >85%). First
deposit 1
Home Owners Grants not considered genuine savings
requirements
• LVR restrictions apply depending on location, property value and nature of security
Security • Restrictions on high-density apartments based in postcode defined areas (generally Capital
Pre-2006
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020 (YTD)
City CBD’s) and properties in towns heavily reliant on a single industry (e.g. mining, tourism)
• Mortgage insurance for higher risk loans, such as high LVRs. Exception policy applies for
LMI
certain professionals and Westpac Group staff.
1 HEM is the Household Expenditure Measure, produced by the Melbourne Institute.
36 Westpac Fixed Income Investor Presentation May 2020Australian mortgage portfolio repayment buffers.
70% of customers ahead of scheduled repayments.
Variable mortgage interest rates1 (%) Offset account balances2 ($bn)
• Loans assessed at
Owner occupied Investor Buffer . Linked to I/O mortgages Linked to P&I mortgages .
the higher of the
Serviceability customer rate 40.0 40.7 42.0
37.4 38.6 39.2
assessment rate (including any 34.9 36.2
33.4
6.38 6.60 discounts) plus 2.50% 30.5
6.34
5.79 buffer, or minimum
5.35% assessment rate
2.50 2.50 2.50 (“floor rate”)
2.50
Floor • Westpac applies a
rate minimum floor rate of
3.88 3.84 4.10
3.29 5.35%
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
P&I I/O P&I I/O
Australian home loan customers ahead on repayments3 (% by balances)
Mar-19 Sep-19 Mar-20 Loans ‘On time’ and 2 Yrs Mar-20
1 Interest rates for Westpac Rocket Repay Home Loan inclusive of Premier Advantage Package discount assuming loan amount above $250,000. Pricing at 27 March 2020. 2 Excludes RAMS. 3 Customer loans ahead on payments exclude equity/line
of credit products as there are no scheduled principal payments. Includes mortgage offset accounts. ‘Behind’ is more than 30 days past due. ‘On time’ includes up to 30 days past due.
37 Westpac Fixed Income Investor Presentation May 2020Interest only mortgages.
I/O has reduced to 23% of the portfolio.
Australian I/O loan portfolio ($bn) Australian mortgage delinquencies (%)
• 73% weighted average LVR of interest only
I/O performing loans balance (lhs) I/O P&I
loans at origination1 200
I/O 90+ day delinquencies balance (rhs) 14 2.0
• 64% of customers ahead of repayments 12
(including offset accounts)2 150
10 1.5
• Offset account balances attached to interest 100 8
only loans represent 35% of offset account 6
1.0
balances 4
50
• 90+ day delinquencies 73bps (compared to P&I 2
0.5
portfolio 97bps) 0 0
Mar-18
May-18
Jul-18
Jan-19
Mar-19
May-19
Jul-19
Jan-20
Mar-20
Sep-18
Sep-19
Nov-18
Nov-19
• Annualised loss rate (net of insurance claims) 0.0
5bps (2H19: 5bps) Mar-18 Sep-18 Mar-19 Sep-19 Mar-20
I/O lending by dynamic LVR3 and income band (%) Scheduled I/O term expiry4 (% of total I/O loans)
Applicant gross income bands
$250k
52
14 23
34 21 20
9
26 13
14
19 9
3 8
11 8 5
6 3Australian investment property portfolio.
Portfolio composition little changed.
Investment property lending (IPL) portfolio Mar-19 Sep-19 Mar-20 Investment property portfolio by number of properties
LVR of IPL loans at origination (%) 73 72 72
per customer (%)
Weighted 1
LVR of new IPL loans in the period2 (%) 71 70 70 2 1
averages1 7 1
Dynamic LVR3 of IPL loans (%) 59 60 57 2
3
Average loan size4 ($’000) 321 322 322
26 4
Customers ahead on repayments 5
58 59 60 63
including offset accounts5 (%)
6+
90+ day delinquencies (bps) 68 73 78
Annualised loss rate (net of insurance claims) (bps) 3 4 5
Mortgage portfolio by gross income band (%) Mortgage portfolio by LVR at origination (%)
Owner occupied IPL 50 Owner occupied IPL
30
25 40
20
30
15
20
10
5 10
0 0
500Australian mortgage deep dive.
Equity buffers have increased for more recent vintages.
Australian mortgage lending1 by origination date, dynamic LVR2 and income bands (%)
Chart may not add due to rounding Year of origination
$250k 7 64
$100k - $250k 10
31
41 40
+37% +21% to +46% -1% to +20%
1 Portfolio comprised of residential mortgages, excluding RAMS, and business mortgages originated via a separate platform such as construction loans and loans to SMSFs. 2 Dynamic LVR is the loan-to-value ratio taking into account the current loan
balance, changes in security value, offset account balances and other loan adjustments. Property valuation source Australian Property Monitors. 3 Based on a specific Rocket Repay rate offered during the period. Westpac Rocket Repay Home Loan
exclusive of discounts assuming loan amount above $250,000. 4 Source, Westpac Economics, CoreLogic. All dwellings Australia - average 8 major capital cities. Prices to March 2020.
40 Westpac Fixed Income Investor Presentation May 2020Lenders mortgage insurance arrangements.
Separately capitalised to the bank.
Lenders mortgage insurance (LMI) Lenders mortgage insurance arrangements
• Where mortgage insurance is required, mortgages
are insured through Westpac’s captive mortgage LVR Band insurance
insurer, Westpac Lenders Mortgage Insurance1
(WLMI), and reinsured through external LMI • LVR ≤80% Not required
providers, based on risk profile • Low doc4 LVR ≤60%
• WLMI is well capitalised (separate from bank
capital) and subject to APRA regulation. WLMI • LVR >80% to ≤ 90% • Where insurance required, insured through captive insurer, WLMI
targets a capitalisation ratio of 1.2x PCR2 and has • Low doc4 • LMI not required for certain borrower groups
consistently been above this target LVR >60% to ≤ 80% • Reinsurance arrangements:
• Scenarios indicate sufficient capital to fund claims − 40% risk retained by WLMI
arising from events of severe stress – estimated − 60% risk transferred through quota share arrangements with Arch
losses for WLMI from a 1 in 200 year event are Reinsurance Limited, Renaissance Re, Endurance Re, Everest Re, Trans Re,
$85m net of re-insurance recoveries (2H19: $88m) AWAC and Capita 2232
• Insurance liabilities were increased over 1H20,
which included an allowance for the impacts of
• LVR >90% • Where insurance required, insured through captive insurer, WLMI
COVID-19
• LMI not required for certain borrower groups
• 100% reinsurance through Arch Reinsurance Limited
Westpac’s Australian
mortgage portfolio at 31 Mar 2020 (%)
Insurance statistics
84
Not insured
1H19 2H19 1H20
Insured by third parties3 Insurance claims ($m) 7 5 5
Insured by WLMI WLMI claims ratio5 (%) 25 16 15
6
10 WLMI gross written premiums6 ($m) 76 84 89
1 Since 18 May 2015 WLMI has underwritten all mortgage insurance, where required, on Westpac originated mortgages. The in-force portfolio of loans includes mortgage insurance provided by external providers. 2 Prudential Capital Requirement (PCR)
calculated in accordance with APRA standards. 3 Insured coverage is net of quota share. 4 Low doc loans no longer sold. Refers to arrangements in place for legacy products. 5 Loss ratio is claims over the total earned premium plus exchange
commission. 6 LMI gross written premium includes loans >90% LVR reinsured with Arch Reinsurance Limited. 1H20 gross written premium includes $63m from the arrangement (2H19: $56m and 1H19: $52m).
41 Westpac Fixed Income Investor Presentation May 2020You can also read
